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Uncommon Types of Mortgages

  • Balloon Mortgage – has an initial period of low payments, usually 5-7 years, and at the end of that period, the borrower must pay the remainder in full. This can be a good option for Buyers who intend to be in the home only for a short period of time. Businesses often use these to finance construction projects without having to offer collateral.
  • Jumbo Mortgage– more common in higher-cost areas, these fall outside of FHFA borrowing limits due to the large amount requested. These loans were designed to finance luxury properties and homes, and they come with unique underwriting requirements and tax implications. These loans are risky for lenders because they are not backed by Fannie Mae or Freddie Mac and involve a larger amount of money, making these difficult to obtain.
  • Piggyback (or 80/10/10) Mortgage – is actually two separate loans: one for 80% of the home price, one for 10%, and the remaining 10% is the downpayment. These were designed to allow borrowers with little downpayment savings to borrow additional money in order to qualify for a main mortgage without paying for private mortgage insurance.
  • Interest-Only Mortgage – the borrower makes interest-only payments for a set period, usually 5-7 years, then payments for both principal and interest. These types of loans can be beneficial for those who have varying incomes.
  • Construction Mortgage – a short-term, high-interest loan to build a home. Once the home is built, the occupant must apply for a loan to pay for the completed home. There are several types of construction loans. Construction-Only Loans are short-term, typically a year, to cover the actual construction period. They’re high-risk, therefore they are difficult to qualify for. Construction-To-Permanent Loans are exactly as they sound – the initial construction loan covers the construction period, then converts to a permanent mortgage. During the construction period of the loan, the borrower makes interest-only payments. Renovation Loans are used to renovate the home and are insured by the FHA. These loans are designed to allow the borrower to both purchase a home and renovate it with one monthly payment. Owner-Builder Loans are for borrowers who wish to build their own homes. Typically these loans require the borrower to prove experience, education, and/or licensing to show that they have the capability to construct a home. End Loans are traditional loans that the borrower can apply for after construction on the home is completed. Applying for this is the same as applying for a mortgage on any other home.


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